Whirlpool Corporation (NYSE:WHR) is about to trade ex-dividend in the next 2 days. If you purchase the stock on or after the 27th of February, you won’t be eligible to receive this dividend, when it is paid on the 15th of March.
Whirlpool’s next dividend payment will be US$1.20 per share, on the back of last year when the company paid a total of US$4.80 to shareholders. Based on the last year’s worth of payments, Whirlpool stock has a trailing yield of around 3.3% on the current share price of $147.19. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! As a result, readers should always check whether Whirlpool has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Whirlpool’s payout ratio is modest, at just 26% of profit. A useful secondary check can be to evaluate whether Whirlpool generated enough free cash flow to afford its dividend. Fortunately, it paid out only 44% of its free cash flow in the past year.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we’re glad to see Whirlpool’s earnings per share have risen 17% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Whirlpool has delivered an average of 11% per year annual increase in its dividend, based on the past ten years of dividend payments. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Should investors buy Whirlpool for the upcoming dividend? We love that Whirlpool is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It’s a promising combination that should mark this company worthy of closer attention.
Wondering what the future holds for Whirlpool? See what the nine analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.